Over a month ago, we were briefed about a secret Microsoft technology that we were told would be announced alongside the Windows 7 Release Candidate (RC) and would ship in final form simultaneously with the final version of Windows 7. This technology, dubbed Windows XP Mode (XPM, formerly Virtual Windows XP or Virtual XP, VXP), dramatically changes the compatibility story for Windows 7 and, we believe, has serious implications for Windows development going forward. Here's what's happening.

XPM is built on the next generation Microsoft Virtual PC 7 product line, which requires processor-based virtualization support (Intel and AMD) to be present and enabled on the underlying PC, much like Hyper-V, Microsoft's server-side virtualization platform. However, XPM is not Hyper-V for the client. It is instead a host-based virtualization solution like Virtual PC; the hardware assistance requirement suggests this will be the logical conclusion of this product line from a technological standpoint. That is, we fully expect future client versions of Windows to include a Hyper-V-based hypervisor.

XP Mode consists of the Virtual PC-based virtual environment and a fully licensed copy of Windows XP with Service Pack 3 (SP3). It will be made available, for free, to users of Windows 7 Professional, Enterprise, and Ultimate editions via a download from the Microsoft web site. (That is, it will not be included in the box with Windows 7, but is considered an out-of-band update, like Windows Live Essentials.) XPM works much like today's Virtual PC products, but with one important exception: As with the enterprise-based MED-V (Microsoft Enterprise Desktop Virtualization) product, XPM does not require you to run the virtual environment as a separate Windows desktop. Instead, as you install applications inside the virtual XP environment, they are published to the host (Windows 7) OS as well. (With shortcuts placed in the Start Menu.) That way, users can run Windows XP-based applications (like IE 6) alongside Windows 7 applications under a single desktop.

Obviously, XPM has huge ramifications for Windows going forward. By removing the onus of legacy application compatibility from the OS, Microsoft can strip away deadwood technology from future versions of Windows at a speedier clip, because customers who need to run older applications can simply do so with XPM. For Windows 7 specifically, XPM is a huge convenience, especially for Microsoft's corporate customers, who can of course control XPM behavior via standard Microsoft administration and management technologies like Active Directory (AD) and Group Policy (GP). And it significantly recasts the Windows 7 compatibility picture. Before, Microsoft could claim that Windows 7 would be at least as compatible as Windows Vista. Now, they can claim almost complete Windows XP compatibility, or almost 100 percent compatibility with all currently running Windows applications.

We've both been using and testing Virtual XP for over a month and we we've been dying to communicate what we've discovered, as you might imagine. So here's what you can expect. Paul will publish a high-level screenshot gallery on the SuperSite for Windows showing off Windows XP Mode and what it's like to run Windows XP and Windows 7 applications side-by-side. On Within Windows, Rafael will provide a deep technical dive into Windows XP Mode and explain how it works and how you can make it work the way you want. Later, Paul will add a Windows XP Mode article to his Windows 7 Feature Focus series as well. And of course we'll be covering this feature in-depth in "Windows 7 Secrets," which will be published by Wiley & Sons later this year.